Cyprus's finance minister and central bank governor said on Monday they were seeking a fresh formula that would exempt smalltime bank depositors from the harsh levy proposed in an EU bailout deal.
Finance Minister Michalis Sarris and Central Bank governor Panicos Demetriades separately told parliament that they were looking to see a tax-free threshold for savings up to 100,000 euros.
Demetriades told MPs that under this plan, however, deposits of more than 100,000 euros would be forced to take a bigger hit.
"I suggest we work on the numbers again, if we don't we will be unable to rebuild trust among depositors because we have broken our contract with them," Demetriades told parliament.
He said the eurogroup was prepared to accept a change in the tax structure.
Sarris said that of the 67 billion euros in deposits, 30 billion represent savings held in accounts of less than 100,000.
"Together with the Central bank we are discussing the reconfiguration of rates which are close to zero for 100,000," said Sarris.
He said there had been a change of stance from international lenders who initially demanded a cut on all deposits.
Demetriades said that if the law is passed by parliament, the European Central Bank will hold an emergency meeting aimed at releasing extra liquidity to Cyprus banks to help them withstand a possible rush on accounts.
"There will be a large outflow but we will deal with it," he said.
As a condition for a desperately-needed 10-billion-euro ($13 billion) bailout for Cyprus, fellow eurozone countries and international creditors Saturday imposed a levy on all deposits in the island's banks.
Deposits of more than 100,000 euros will be hit with a 9.9 percent charge, while under that threshold the levy drops to 6.75 percent.
ECB executive board Joerg Asmussen told a conference in Berlin that "if Cyprus's president wants to change something in the structure of the levy on bank deposits, that's in his hands. He must simply make sure that the financing is intact."